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Were Hedge Funds Right About Flocking Into Allegiant Travel Company (ALGT) ?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 15 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 19.7% during the first 2.5 months of 2019 (vs. 13.1% gain for SPY), with 93% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Allegiant Travel Company (NASDAQ:ALGT).

Allegiant Travel Company (NASDAQ:ALGT) was in 21 hedge funds’ portfolios at the end of December. ALGT has seen an increase in enthusiasm from smart money recently. There were 15 hedge funds in our database with ALGT positions at the end of the previous quarter. Our calculations also showed that algt isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CITADEL INVESTMENT GROUP

Let’s take a look at the key hedge fund action surrounding Allegiant Travel Company (NASDAQ:ALGT).

How have hedgies been trading Allegiant Travel Company (NASDAQ:ALGT)?

At Q4’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 40% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in ALGT a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with ALGT Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, PAR Capital Management, managed by Paul Reeder and Edward Shapiro, holds the number one position in Allegiant Travel Company (NASDAQ:ALGT). PAR Capital Management has a $161.4 million position in the stock, comprising 2.7% of its 13F portfolio. Sitting at the No. 2 spot is Diamond Hill Capital, managed by Ric Dillon, which holds a $59.9 million position; 0.4% of its 13F portfolio is allocated to the company. Remaining peers that are bullish contain Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC, Jim Simons’s Renaissance Technologies and Ken Griffin’s Citadel Investment Group.

As aggregate interest increased, key money managers have jumped into Allegiant Travel Company (NASDAQ:ALGT) headfirst. Ancient Art (Teton Capital), managed by Quincy Lee, established the largest position in Allegiant Travel Company (NASDAQ:ALGT). Ancient Art (Teton Capital) had $10 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $5.7 million investment in the stock during the quarter. The following funds were also among the new ALGT investors: John Tompkins’s Tyvor Capital, Brad Gerstner’s Altimeter Capital Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s check out hedge fund activity in other stocks similar to Allegiant Travel Company (NASDAQ:ALGT). We will take a look at Diodes Incorporated (NASDAQ:DIOD), Cooper Tire & Rubber Company (NYSE:CTB), Invesco Mortgage Capital Inc (NYSE:IVR), and CNOOC Limited (NYSE:CEO). All of these stocks’ market caps are closest to ALGT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DIOD 15 69155 -2
CTB 17 140866 7
IVR 13 27092 2
CEO 15 265499 0
Average 15 125653 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $355 million in ALGT’s case. Cooper Tire & Rubber Company (NYSE:CTB) is the most popular stock in this table. On the other hand Invesco Mortgage Capital Inc (NYSE:IVR) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Allegiant Travel Company (NASDAQ:ALGT) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on ALGT as the stock returned 30.8% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Disclosure: None. This article was originally published at Insider Monkey.

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